21 Apr Giving Smarter: How to Make Your Charitable Donations Work Harder
Giving Smarter: How to Make Your Charitable Donations Work Harder
Most people give to charity because they want to make a difference, not because of the tax benefits. But those two goals do not have to be mutually exclusive! With some straightforward planning, you can often give more to the causes you care about while keeping more of what you earn. And in 2026, the rules just changed in ways that affect nearly everyone.
What Changed This Year
The tax bill signed July 4, 2025 rewrote several rules around charitable deductions. Here is what matters:
Beginning in 2026, a reinstated deduction allows non-itemizers to deduct cash donations up to $1,000 for single filers or $2,000 for married couples filing jointly. Since nearly 86% of taxpayers are expected to take the standard deduction in 2026, this is actually a significant expansion of who gets a tax benefit for giving. If you have been donating to charity without any tax benefit at all, that changes this year.
For those who do itemize, there is a catch. Starting in 2026, charitable donations below 0.5% of adjusted gross income (AGI) will not be deductible. For example, a taxpayer with $200,000 in AGI and $10,000 in charitable giving would find that the first $1,000 is not deductible, but the remaining $9,000 would be. For most generous givers this is a minor haircut, but it does change the math on smaller, scattered donations. If you have been doing smaller donations and the tax deduction is important to you, you might consider clumping your donations so that you can give larger amounts every couple years, and take advantage of the deduction.
High earners in the 37% bracket face one additional change: the tax benefit of their charitable deductions is now capped at 35%, meaning a $1,000 donation yields $350 in tax savings rather than $370. Not dramatic, but worth knowing.
For Retirees: The QCD Is Still the Best Tool in the Box
If you are 70½ or older and have a traditional IRA, the Qualified Charitable Distribution (QCD) deserves a spot at the top of your giving strategy.
Here is how it works: instead of taking money out of your IRA, paying income tax on it, and then donating the after-tax dollars to charity, you instruct your IRA custodian to send the money directly to the charity. The distribution goes straight from your account to the organization, up to $108,000 per year in 2026. You never touch the money, you never pay tax on it, and it counts toward your Required Minimum Distribution if you are subject to one.
The reason this is so powerful is that it works regardless of whether you itemize. The donation is simply excluded from your taxable income entirely, which also means it does not inflate the income figures that affect your Medicare premiums or the taxability of your Social Security benefits! For retirees who are charitably inclined, those secondary benefits can be surprisingly meaningful.
One important note: QCDs apply only to cash donations made directly to qualified charities. Contributions to donor-advised funds or private foundations do not qualify. The gift has to go straight to the charitable organization.
For Investors: Give the Stock, Not the Cash
If you have held a stock or mutual fund for more than a year and it has appreciated in value, donating it directly to charity is almost always better than selling it and donating the proceeds.
Here is why. When you sell appreciated securities, you owe capital gains tax on the gain, sometimes 15% or 20% at the federal level, plus state tax on top of that. When you donate the securities directly, the charity receives the full fair market value, you receive a deduction for the full fair market value, and nobody pays capital gains tax. The charity, as a tax-exempt organization, can sell the shares with no tax consequence.
A simple example: you own 100 shares of a stock currently worth $10,000 that you originally paid $2,000 for. If you sell it, you owe capital gains tax on $8,000 of gain. If you donate the shares directly, you get a $10,000 deduction and avoid the capital gains entirely. The charity still gets $10,000. Everyone wins except the IRS! Ha!
This strategy works with individual stocks, mutual funds, and ETFs. Most major custodians, including Schwab, can facilitate a direct transfer to most large charities. Smaller organizations may need to set up a brokerage account to receive securities, so it is worth a quick call to the charity before initiating the transfer.
For Bigger Givers: Bunching and Donor-Advised Funds
The new 0.5% AGI floor on itemized deductions, combined with the larger standard deduction, has pushed more people to consider a strategy called bunching. The idea is simple: instead of giving a modest amount every year, you concentrate two or three years of giving into a single year to push your total deductions well above the standard deduction threshold. In the off years, you take the standard deduction.
A donor-advised fund (DAF) makes bunching practical. You make a large contribution to the DAF in a high-income year, take the deduction immediately, and then distribute the money to your chosen charities over time, on your own schedule. The DAF holds the assets, invests them tax-free, and sends grants to charities at your direction. You get the timing flexibility of giving whenever you want with the tax efficiency of giving in a single year.
Donor-advised funds are particularly useful for donors who are uncertain about exactly where they want to direct funds. You can deduct now and decide later. This is also a useful vehicle for donating appreciated securities, since the DAF can accept the shares, sell them tax-free, and then deploy the cash to multiple charities over time.
For Everyone: The Basics That Still Matter
A few reminders that apply regardless of your income level.
Get your receipts. The IRS requires written acknowledgment from the charity for any donation of $250 or more. For non-cash donations, such as clothing or household goods to Goodwill or the Salvation Army, you need an itemized list and a fair market value estimate. The charity will provide a receipt, but the valuation is your responsibility. The IRS publishes guidance on what used goods are worth, and apps like ItsDeductible can help you document non-cash contributions accurately.
Keep a record of everything. Small cash donations, online giving, text-to-give campaigns, all of it. They add up, and if you are approaching the threshold where itemizing makes sense, you want a complete picture.
Volunteer time is not deductible, but out-of-pocket expenses incurred while volunteering are. Mileage driven for charitable purposes can be deducted at 14 cents per mile. It is not a large number, but it is something.
If you tithe regularly to your church or house of worship, the same rules apply as any other qualified charitable contribution. Churches organized as 501(c)(3) organizations qualify, and most do. Keep a record of your contributions throughout the year, whether by check, online giving portal, or your church’s giving statement, which most congregations provide annually. If you are a non-itemizer, your tithe counts toward the new $1,000 single / $2,000 joint deduction introduced this year. If you itemize and your total charitable giving clears the 0.5% AGI floor, your tithe is part of what gets you there. For retirees who tithe consistently, the QCD is worth a close look: directing your IRA distribution straight to your church satisfies your tithe, avoids income tax on the distribution, and counts toward your RMD. For many churchgoing retirees, it is one of the cleanest giving strategies available.
Finally, if your income fluctuates year to year, pay attention to which years are higher. A year with unusually high income, perhaps from a business sale, a large bonus, or a Roth conversion, is often the best year to make a large charitable gift. The deduction is worth more when your marginal tax rate is higher.
Please drop me a line if you would like to discuss your charitable gifting strategy!
Sources: https://taxfoundation.org/blog/charitable-deduction-big-beautiful-bill/
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